Daily Commentary BY THE CURVE TEAM –

Businesses Exuberant

14th of April, 2021

Phenomenal business survey data was released yesterday, with one particular indicator overdelivering.

Business conditions for March rose 8 points to be 25 points, which is a record high for the index. Confidence on the other hand was down slightly but remains very high at 15.

Employment in particular has a very positive outlook, up 7 points to 16. This points to continued strength in the labour market to offset the end of JobKeeper.

There is also evidence that prices may experience upward pressure. Purchase and labour costs are currently outpacing final product prices, so at some point this may translate to higher prices for goods and services.

US inflation is already experiencing such price rises. Headline inflation was up 0.6% for March, leaving it 2.6% higher for the year.

This was above expectations, but markets showed little reaction. This likely implies that inflation expectations have largely been priced into the market, especially since the surge in bond yields over February.

Also yesterday was an update from Fitch on the ratings of the major banks. They changed the outlook from negative to stable for all four.

Fitch has the four banks one notch lower than the equivalent ratings by S&P and Moody’s. They singled out Westpac in their announcement, saying their current profitability does not align with the current A+ rating, which could suggest if there were to be downgrades then Westpac would be in the firing line first.

Josh Stewart

Associate - Money Markets